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Searching for a safe haven to crude oil: Green bond or precious metals?

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  • Huang, Jie
  • Cao, Yu
  • Zhong, Pengshu

Abstract

In this paper, we explore whether the green bond, a kind of rarely discussed fixed-income asset, acts as a hedge or safe haven to crude oil in extreme market conditions, by comparing the results with precious metals. The green bond has negative correlations with crude oil when the COVID-19 pandemic and the Russia-Ukraine conflict outbreak, and the highest risk reduction effectiveness among all assets, indicating that investors benefit the most from adding the green bond to their portfolios. Applying the model purposed by Baur and McDermott (2010), we further find that the green bond is both a strong safe haven and a strong hedge for the crude oil market, gold is a weak safe haven and a strong hedge, silver only acts as a weak hedge, and other precious metals are neither safe haven nor hedge. Our results reveal that crude oil market investors can hedge the risk during the extreme rise and fall periods by including the green bond in their portfolios.

Suggested Citation

  • Huang, Jie & Cao, Yu & Zhong, Pengshu, 2022. "Searching for a safe haven to crude oil: Green bond or precious metals?," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s154461232200486x
    DOI: 10.1016/j.frl.2022.103303
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    References listed on IDEAS

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    Cited by:

    1. Chi-Wei Su & Kai-Hua Wang & Oana-Ramona Lobonţ & Meng Qin, 2023. "Continuous Wavelet Transform of Time-Frequency Analysis Technique to Capture the Dynamic Hedging Ability of Precious Metals," Mathematics, MDPI, vol. 11(5), pages 1-18, February.
    2. Hu, Genhua & Jiang, Haifeng, 2023. "Time-varying jumps in China crude oil futures market impacted by COVID-19 pandemic," Resources Policy, Elsevier, vol. 82(C).
    3. Naeem, Muhammad Abubakr & Iqbal, Najaf & Karim, Sitara & Lucey, Brian M., 2023. "From forests to faucets to fuel: Investigating the domino effect of extreme risk in timber, water, and energy markets," Finance Research Letters, Elsevier, vol. 55(PB).
    4. Wang, Kai-Hua & Wen, Cui-Ping & Liu, Hong-Wen & Liu, Lu, 2023. "Promotion or hindrance? Exploring the bidirectional causality between geopolitical risk and green bonds from an energy perspective," Resources Policy, Elsevier, vol. 85(PB).
    5. Su, Yun Hsuan & Rizvi, Syed Kumail Abbas & Umar, Muhammad & Chang, Hsuling, 2023. "Unveiling the relationship between oil and green bonds: Spillover dynamics and implications," Energy Economics, Elsevier, vol. 127(PA).
    6. Ming, Lei & Yang, Ping & Tian, Xinyi & Yang, Shenggang & Dong, Minyi, 2023. "Safe haven for crude oil: Gold or currencies?," Finance Research Letters, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Crude oil; Green bond; Safe haven; COVID-19 pandemic; Russia-Ukraine conflict;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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